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Human emotions can cause all sorts of problems when trading forex and all successful traders know this. It’s for this reason that many traders create trading systems, in an attempt to eliminate their negative emotions and keep a level head while playing the markets.

There is a lot of sense in this and trading systems are indeed essential for taming problems of self sabotage. However, it’s important to note that trading systems are not quite the holy grail when it comes to emotion-free trading. Indeed, traders often end up transferring their emotions to their system and thereby destroy their chances of success.

A Guest Post By  FXTM

Curve fitting the system

The first way in which a traders emotions can affect her trading system is in the actual building of that system in the first place. For example, if a trader is not level-headed, she may build a system that is not adequately robust. She may decide that extensive testing is not necessary and may be too lazy to do all the work.

As a result, the trading system will be inadequate or curve fit to the underlying market. In short, the traders emotions will still rule, even if a trading system is in place.

Failing to follow the system

Another scenario occurs if a trader has built a system but then, for whatever reason, fails to follow that system as necessary. This can happen because the trader is nervous or lacking in confidence, or if fear is overcoming every trading decision. In this scenario, again, the system is in place, but the human emotion is overriding it and destroying it’s chances.

It’s important to note that this can happen at any point along the line; when entering a trade, when closing a trade, when initiating a stop or when looking for trade signals. Each element of trading must be taken account of when designing a system and the system should be followed exactly in order to get the right results.

Changing the system

Another overlooked way of cheating the system and destroying your chances is by constantly changing the system you have in place or jumping onto other systems. To put it bluntly, the system that you have built up has probably take a lot of time so it’s generally not a good idea to go changing it or moving to a different system too quickly. Trading systems take time to develop and to come good, so there is every chance that the system will eventually work if just a bit more patience is taken.

This of course does bring up a few issues. If we are not supposed to alter the trading systems we use, how can we possibly seek to improve them?

The answer is that changes should be made only very gradually. They should be based on historical patterns and tested thoroughly, before, during and after implementation. This is the only way to ensure that your system won’t destroy your chances.

Further reading:  4 Hazards for forex traders